Tuesday, March 31, 2009

In Praise of Capitalist Exploitation

For well over a century, socialists, progressives, and even many Christians have railed against the capitalist exploitation of workers. They denounce capitalists—whether the Carnegies and Fricks of yesteryear or the Nikes of today—for paying low wages for hard work.

Their antagonism toward individual and corporate targets is misplaced. The inexorable law of supply and demand, not greedy exploiters, determines wages. When the supply of labor exceeds capital’s demand for labor, wages are low. Carnegie could pay low wages because if Smith wasn’t willing to work for a pittance, Jones was. Why? Because those low wages were superior to Jones’ other options. The choice wasn’t between a carefree life in the country and hard labor for low wages. It was between regular income or destitution, misery, and too often an early death. That is why our ancestors took those jobs, and that is why, in poor countries today, when a sweatshop has openings, eager applicants line up for blocks.

The subsistence wages prevalent in the early stages of the Industrial Revolution and the Age of Capitalism impelled the classical economist David Ricardo to posit the “iron law of wages”—the theory that workers were doomed forever to earn subsistence wages. But a funny thing happened on the way to perpetual poverty. Ricardo (and indeed, all his contemporaries) did not foresee the rapid multiplication of wealth that capitalism would generate. Had they lived for another 50 years, they would have seen the law of supply and demand cuts both ways. When capital’s demand for labor exceeds supply, wages rise, which is exactly what happened as more and more capitalists began to “exploit” labor. The same phenomenon has been witnessed in China in this decade (before the recent global economic contraction). Chinese workers, who had been at the mercy of employers, demanded—and got—much better compensation, as employers competed for their labor.

It isn’t the Carnegies’ and Nikes’ fault when wages are low. They aren’t responsible for an area having a large pool of labor, nor are they to blame when there aren’t more capitalists competing to employ those workers. Where wages are low, the cause isn’t the presence of exploitative capitalist employers, but precisely the opposite: there aren’t enough capitalist employers to tilt the law of supply and demand to labor’s advantage.

There are two ways to shift the labor/capital ratio to raise wages—either reduce the supply of labor (after the bubonic plague wiped out a third of Europe’s population in the 14th century, wages rose smartly for the survivors) or increase capital investment. Some radical environmentalists favor the former, but isn’t peaceful investment preferable to genocide?

According to Marxist-Leninist dogma, capitalists are economic bloodsuckers, enriching themselves while impoverishing their employees. The fallacy in this assertion is evident in the indisputable fact that most of the world’s capital is invested in the rich, developed countries, not in poor countries. It is no coincidence that the United States has both the most invested capital and the most wealth. I don’t know about you, but I don’t feel “exploited” or victimized. However, I suspect that millions of people around the world wish they were so exploited.

Critics of sweatshops apply a static rather than dynamic analysis. They take a mental snapshot of a rich company making large profits while paying meager wages. From this picture, anti-capitalist critics perceive sweatshops as the end-result of capital investment. That is an error. Life is a motion picture, not a snapshot. In country after country that has made its peace with profit-seeking capitalists, grim working conditions have been a transitional phenomenon, marking the early stages of a society’s emergence from lethal poverty to improved standards of living and longevity.

Sweatshops comprise the first couple of grim rungs on the ladder of economic development. While no humane person would wish sweatshops to be a permanent condition for a society, neither should any humane person wish to cut off the bottom rungs of the ladder of economic progress and condemn a society to remain permanently poor.

Those who condemn sweatshops categorically for being “harsh” should specify “harsh relative to what?” Harsh by our standards, indeed, but often an improvement over work standards prevalent in those countries and far less harsh than the conditions those workers would face without those jobs. Nike gets bashed for allegedly paying “low wages,” but that is only true by the standards of a developed country. In Vietnam, Nike pays workers twice a teacher’s salary and more than government-employed doctors make; in Honduras, Nike’s starting wage is above the average per capita income, etc., etc.

Over the course of human history, profit-seeking business leaders—scorned as “greedy capitalists”—have done more to preserve human life and lift human beings out of poverty than all the churches, charities, and government welfare programs combined. That isn’t to argue the self-evident absurdity that all capitalists have been decent or well-intentioned individuals; nevertheless, the evidence is overwhelming that capitalists, as a group, have done far more to benefit the human race than anyone else. It is economic ignorance or, in a minority of cases, warped character, that impels critics to vilify society’s benefactors. These benefactors deserve our gratitude and praise, for without them, there would be a lot fewer people alive today and a lot more poverty.

Dr. Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College.